FPT UNIVERSITY DIGITAL MARKETING SUBJECT [ACC101] TOPIC PROJECT ANALYZE THE 2020 AND 2021 FINANCIAL STATEMENTS OF WALMART Class code IB1705 Lecturer Tran Ngoc Chau Group members Name of group me[.]
Trang 1FPT UNIVERSITY
DIGITAL MARKETING
- -SUBJECT [ACC101]
TOPIC PROJECT
ANALYZE THE 2020 AND 2021 FINANCIAL STATEMENTS OF WALMART
Class code: IB1705
Lecturer: Tran Ngoc Chau
Group members:
Trang 2I Introduction 3
1. Background of Walmart.inc 3
2. Identify the strengths and weaknesses of the company 3
2.1 Strengths 3
2.2 Weaknesses 3
II Qualitative analysis of the business 3
1 Qualitative of Walmart 3
III. Data analysis 4
A Liquidity Ratio 4
1 Current Ratio 4
B. Profitability Ratio 5
1 Return on assets ( ROA ) 5
2. Return on Equity ( ROE ) 7
3. Profit margin 8
C. Solvency Ratio 9
1 Debt to assets ratio 9
IV. Recommendation 10
V. References 11
Trang 3I Introduction
1 Background of Walmart.inc
Founded by Sam Walton in 1962, incorporated the company on October 31, 1969, and listed on the New York Stock Exchange in 1972. Walmart, currently the largest grocery retailer in the United States, with about 20% of its consumer and grocery sales, is also the largest US toy company with about 45% of toy sales and is currently one of the largest companies in the world (by sales) as announced by Fortune 500
2019. It is also the largest private employer in the world and the fourth largest public and commercial employer in the world. (The other three are the People's Liberation Army of China, the National Health Service of the United Kingdom of Great Britain and Northern Ireland and the Indian Railways) (Walmart, 2022)
2 Identify the strengths and weaknesses of the company
2.1 Strengths
Walmart has a lot of strengths and one of them is its size as one of the largest retailers in the world, with
an unprecedented scale of operations and market power that outshines its suppliers and competitors competitor. Besides that, it is also a leading corporation in terms of cost strategy. In addition, the combination of a developed distribution system and a well-managed information system. One of its strengths in response to the current global trend is its international presence. Moreover, the large selection
of goods in many physical stores helps it develop e-commerce sales channels faster and at a lower cost (Jurevicius, 2021)
2.2 Weaknesses
Besides the strengths in the market of Walmart, there are still weaknesses in the way this company operates. First of all, relying too much on sales from the US market while not helping much, may even harm the economies of local communities in the long run. (Jurevicius, 2021b). Another weakness is that the recruitment policy was harshly criticized leading to a high rate of employee turnover (it was once rated as an unsafe working environment and was also accused of wage theft) and poor customer service (not including rich customers). Moreover, there are allegations of poor treatment of women (including pregnant women), the elderly, people with disabilities, and poor employee health policies. And the last one is negative publicity and poor brand reputation. (Osterndorf, 2015)
II Qualitative analysis of the business
1 Qualitative of Walmart
Pricing: Walmart is very successful with pricing its products in terms of the long term. The company has
earned a very large profit and has a very high coverage from its low price strategy when bringing to the market "soft" prices for all products, which increases customer demand. Pricing is customer-friendly and focuses on bulk sales to maximize revenue of the inexpensive products rather than expensive products
Trang 4This is a smart move of the company when it hits the number of customers first, the company wants to build a loyal customer base before hitting the higher segments (VLI, 2019)
Pressure over vendors: The on-time, in-full (OTIF) mode will require suppliers to take a close look at
their supply chains, including their choice of service partners. They will need to take into account the carrier's distance from the market, the type of equipment and the suitability to handle the product in question. Simply choosing the lowest cost transportation providers can lead to being swayed from a performance standpoint (vulambach, 2022)
Human resource practices: Bringing cutting-edge innovations in human resource practices could be a
boon for Walmart As it relies heavily on its workforce, bringing innovation in human resource management is a key opportunity. The diversity in human resources at Walmart does not stop at gender but also in the views and open working environment of this corporation Here, all suggestions, observations or problems of employees are always taken care of by the management (Nguyên, 2021)
Expansion policies: In its nearly 60-year growth journey, Walmart has also expanded into pharmacies,
auto service, and jewelry stores. Walmart has over 11500 retailers worldwide under 63 banners in 28 countries, which include 4600+ Walmart US, 650+ Sam's clubs and 6200+ Walmart International stores This strategy of Walmart targets the psychology of customers, once convenience is built, as well as good coverage, consumers will prioritize using products. Therefore, the number 1 position in the US is a great achievement that Walmart has gained from this strategy (linkedin, 2022)
Customer service: Walmart still holds the number one position in the click-and-collect service market
share and is far ahead of other competitors, thanks in part to its early starting point. The click-and-collect service has become a key driver of sales growth for retailers during the pandemic as it is a fast and secure way to shop, with minimal face-to-face interaction. with people. It started with a store in Denver in 2013 and recorded its 1,000th location in 2017. Walmart has now rolled out the service in more than 3,700 stores (Hằng, 2022)
III Data analysis
A Liquidity Ratio
1 Current Ratio
a Definition
The current ratio is a liquidity ratio that measures a company’s ability to pay short-term obligations or those due within one year. It tells investors and analysts how a company can maximize the current assets
on its balance sheet to satisfy its current debt and other payables. This coefficient is used to measure the company's ability to pay short-term debts with short-term assets, such as cash, receivables, inventories, etc.
The higher the result, the greater the company's ability to repay the debt. If the ratio is less than 1, the company is likely to be unable to pay its debts, but that does not mean that the company will be bankrupt because there are many ways to raise more capital
b Formula
Trang 5Current ratio = Current Asset
Current Liabilities
c Data from the selected companies
WALMART.INC
Current Asset 61,806 billion 90,067 billion
Current Liabilities 77,79 billion 92,645 billion
TARGET CORP
Current Asset 20,31 billion 20,76 billion
Current Liabilities 19,36 billion 20,13 billion
d Comparison
From the calculation results of Walmart’s financial ratios, the current ratios between 2020 and 2021 was less than 1. It means that Walmart will not be able to pay all the short-term debts immediately.
Walmart's growth and profits from offering products in large quantities and at low prices have always been dependent on input costs. (VietNam, 2015). Walmart's sales method is: "Sell the best products at the lowest possible price", so Walmart's product prices are usually very cheap.
Many value investors consider 1.5 to be an ideal current ratio (Chi, 2021). Walmart's current ratio was 0.8
at the end of January 31, 2020, and Target's current ratio was 1,05 (Trends, 2019). The Target has current ratios greater than 1. It is shown that the liquidity of Target is good so the company has good debt payment ability. At the same time, a slightly higher current ratio would be good to see from Target, which shows that Walmart needs to worry about whether it can pay off its debt in the short term.
B Profitability Ratio
1 Return on assets ( ROA )
a Definition
Trang 6The return on assets (ROA) shows the percentage of how profitable a company's assets are in generating revenue. ROA can be computed as below: This number tells you what the company can do with what it has.
This metric shows whether a business is effectively using all its assets. The higher the ROA, the more efficient the use of capital (Hargrave, 2022)
b Formula
ROA= Total Assets Net Income
c Data from selected companies
WALMART.INC
Net Income 15,201 billion 13,706 billion
Total Assets 77,79 billion 92,645 billion
TARGET CORP
Net Income 3,28 billion 4,37 billion
Total Assets 42,78 billion 51,25 billion
d Comparison
In 2020, the ratio of return on equity of Walmart is 6,43%, it means that Walmart can not bring businesses a high profit with the amount of capital that the owner has spent.
But compared to the number of assets that Walmart has spent in 2020 and 2021 (specifically 77.79 billion and 92,645 billion ), Walmart's net income was only 15,201 in 2020 and 13,706 in 2021. This shows that Walmart’s capital use is ineffective
With other views of Target Corporation, the ROA increased from 7,78 % to 8,97% ( 2020-2021). Although both companies are in the same situation affected by the covid 19 pandemic, Target Corp’s capital use is more effective than Walmart's.
Trang 72 Return on Equity ( ROE )
a Definition
Return on equity (ROE) is a measure of financial performance calculated by dividing net income by total equity. ROE is considered a measure of how effectively management is using a company’s assets to create profits. This index will help investors to decide whether to invest in that company (Fernando, 2022)
b Formula
ROE= Total Equity Net Income
c Data from the selected companies
WALMART.INC
Net Income 15,201 billion 13,706 billion
Total Equity 81,552 billion 87,531 billion
TARGET CORP
Net Income 3,28 billion 4,37 billion
Total Equity 11,83 billion 14,44 billion
d Comparison
In 2020, the ratio of return on equity of Walmart is quite high, which means that Walmart can bring businesses a high profit with the amount of capital that the owner has spent, but that rate decreased steadily in the next year. This shows that Walmart's equity use is ineffective
In contrast, Target Corp, although the profit earned based on equity is not high, that ratio increased by 5,59% from 2020 to 2021. This shows that Target Corp uses the equity effectively
Trang 8is considered good when compared to Walmart's ROE, Target’s ROE is 2,16 times that of Walmart in
2021.
Investors find a ratio of 15% as appropriate, and one of less than 10% as poor (Topi, 2022). If a company
is performing well, an exceptionally high ROE is positive if net income is significantly higher than equity. However, a very high ROE is sometimes the result of a low equity position relative to net income, which implies risk
3 Profit margin
a Definition
The Profit Margin Ratio is a profitability ratio that measures the amount of net income earned with each dollar of sales generated by the company. The Profit Margin Ratio shows what percentage of sales are left over after all expenses are paid by the business. Profit margins are used by creditors, investors, and businesses themselves as indicators of a company's financial health, management skill, and growth potential (Segal, 2021)
b Formula
Profit margin= Net Income Net Sales
c Data from the selected companies
WALMART.INC
Net Income 15,201 billion 13,706 billion
Net Sales 519,926 billion 555,233 billion
TARGET CORP
Net Income 3,28 billion 4,37 billion
Net Sales 78,112 billion 93,561 billion
Trang 9d Comparison
Net profit margin will be very low, because the retail industry has a low-profit margin but in return is a high quantity (because it sells many products).(shopify, 2022). So Walmart focuses on making money through volume. Walmart's net profit margin in 2020 is 2.92% and in 2021 is 2.47%, indicating a change
in the company's financial health, down 0.45% over the year with last year
Opposite to Walmart, Target's profit margin in 2020 is 4.199 percent and by 2021, its net profit margin will increase by 4.67%, up 0.471 percent year-on-year. But overall, Target's two years are still higher than Walmart's in terms of the company's profitability.
Due to the effects of the COVID-19 pandemic, both Walmart and Target have generally experienced ups and downs, but overall in 2020 and 2021, Target's net profit is higher than Walmart's, indicating the lead
in terms of one of the indicators that are most crucial to the overall financial health of the company
C Solvency Ratio
1 Debt to assets ratio
a Definition
The total debt-to-total assets ratio shows the degree to which a company has used debt to finance its assets. The calculation considers all of the company's debt, not just loans and bonds payable, and considers all assets, including intangibles. If the ratio is > 1, the company has more debt than assets. The lower the debt ratio, the lower risk.
b Formula
Debt to asset ratio= Total Liabilities Total Assets
c Data from the selected companies
WALMART.INC
Total Liabilities 170,944 billion 148,964 billion
Total Assets 236,495 billion 252,496 billion
TARGET CORP
Trang 10Total Liabilities 154,943 billion 164,965 billion
Total Assets 42,779 billion 51,248 billion
With the figure of Walmart.Inc, we can conclude that they decreased total liabilities from 170 billion to
148 billion while the total assets increased overall. This would explain the effectiveness of utilizing the owner of equity. However, Target Corp has the opposite perspective. They concentrated strongly on debt
to develop their business model with a 362% of debt-to-assets ratio, and a 321% in 2020, and 2021, respectively
Managing the debt should be taken into consideration because this would reduce the level of risk for the company as Walmart did before. However, utilizing many sources of debt also help Target corp have more abilities and opportunities to expand its market size and it could invest in other new fields to bring about the high volume of revenue in general
d Conclusion
Through the analysis, we see that even though Walmart is affected by the Covid 19 epidemic, the debt still be reduced. That is a positive sign that the company's debt management is good. That will be the basis for predicting that Walmart will continue to reduce the debt ratio after the epidemic. Therefore, Walmart will be a good choice for investors to invest in the company
IV Recommendation
Based on the company's weakness analysis, Walmart should expand its business to global markets – Walmart needs to explore opportunities in developing markets to strengthen its position and increase market share
Improving its HR management standards and resolving the employees’ issues. An effective HR system will prevent Walmart from any potential criticism regarding its workforce.Addressing controversial issues
as quickly as possible. Walmart needs to enhance its online sales website and include only authentic products to prevent further public criticism.Upgrading its online e-commerce sites. Walmart needs to resolve technical issues that hinder the website’s progress and offer a satisfying shopping experience for the customers
Walmart should improve its brand image, employment, and business practices. That would most likely result in more productive employees, happier customers, and eventually higher sales. Boosting marketing and promotional activities – will help the company to enhance its brand image and attract new customers Walmart should also play an active role in environmentally sustainable practices to create a positive image in the industry